trw a utomotive h oldings equity investment presentation 1 richie hartz ha da jang diana yang april...

TRW Automotive HoldingsEquity Investment Presentation

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Richie HartzHa Da Jang Diana Yang

April 11, 2013

Agenda

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IntroductionIntroduction CompanyCompany IndustryIndustry ValuationValuation

Introduction

Company Overview

Industry Overview

Stock Performance

Financial Analysis

Valuation

Recommendation

Company Profile

• Headquartered in Livonia, Michigan

• Employs over 66,000 people worldwide

• Approximately 190 facilities in 25 countries

• Serves all major OE vehicle manufacturers

worldwide

• Leading developer and supplier of active and

passive safety systems

• Four business segments: Chassis Systems,

Occupant Safety Systems, Electronics and

Automotive Components

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Braking

Steering

OSS (Occupant Safety Systems)

Electronics

Source: Company Report


Company History

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1958: Ramo-Woolridge Corporation merged into Thompson Products, Inc.

1999: TRW Inc. acquired Lucas Varity plc, expanded auto product offering

2002: TRW Inc. acquired by Northrop Grumman Corp.

2004: TRW Inc. completed IPO on NYSE

2003: Northrop sold TRW Inc.’s automotive operations to an indirect wholly-owned subsidiary of the Company

1958 1999 2002 2003 2004

Source: Company Report

Sales Breakdown

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Geographic Customer Product

Source: Company Annual Report 2012

• Diversified sources of revenue• Limited reliance on any single customer, platform or market• Global footprint - ability to leverage technology and products across customers and

regions• Economies of scale – optimize cost structure

Breakdown of 2011 Sales of $16.2 bn

Product Segments

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Chassis Systems

•Steering systems• Foundation brakes•ABS•Electronic stability control•Chassis aftermarket

“Active” Safety

2011 Sales of $16.2 bn

“Passive” Safety

Electronics

•Safety electronics •Driver assist systems•Chassis electronics•Powertrain electronics•RF products

Occupant Safety Systems

•Airbags•Seat belts•Steering wheels

Automotive Components

•Body Controls•Engine Valves•Fasteners

Source: Company Annual Report 2012

Historical Financials

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Investment ThesisInvestment Thesis CompanyCompany IndustryIndustry ValuationValuation

12.9%

1.2%

Source: Company Annual Report 2012 Source: Company Annual Report 2012

Source: Company Annual Report 2012 Source: Company Annual Report 2012

Company Profile — Competitive Strengths

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IntroductionIntroduction CompanyCompany IndustryIndustry ValuationValuationSource: BaML 2013 Auto Summit Presentation

Strengths WeaknessesBroad portfolio of active and safety products Cyclical sales and production

Diversified customer base Recent insider selling

Consistent delivery of results Usable life of vehicles in US is increasing

Strong and constant innovation Weak Q4 2012 – Profit down 16% YoY

Cost competitiveness

Opportunities ThreatsContinued demand for safety in vehicles Exposure to commodities price fluctuations

Growth in emerging markets Prolonged recovery in Europe

Long term outlook is positive for production levels Anti-trust investigations

Increased government safety regulations Changing regulatory environment

Expansion through 11 new plants in 2013-2014 Exchange rate risk – 71% of sales outside of US

Porter’s Five Forces

Threat of New Entrants: Moderate

Threat of Substitute Products: HighGrowing Degree of Outsourcing

Bargaining Power of Buyers: HighPricing Pressures Addressed in 2012 10K

Bargaining Power of Sellers: ModerateHigh Concentration of Sellers

Intensity of Competition: HighMargin Contraction, Low Growth Potential

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Braking, Steering, and Suspension Segments

Global Outlook

10Source: BaML 2013 Auto Summit Presentation


North America China & Brazil Europe

Expected Global Trends•Robust consumer demand is expected to support increased production in North America at a moderate pace•Macro economic uncertainties affecting production in Europe•Continued expected growth in emerging markets

Expected Industry Production Trends(units in millions)

Future Growth Drivers•Continued importance of safety and fuel efficiency

Adapting with regulatory demands

•Overall industry recovery Still below trend levels Long term outlook remains favorable

•Keeping up with technological innovation

•Expanding growth in emerging markets Increased government regulations (i.e. Brazil)

Macroeconomic Indicators

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Source: Bloomberg

Commodities

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(USD/MT)


Source: BloombergSource: Bloomberg

Source: BloombergSource: Bloomberg

Stock Performance

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Equity SnapshotEquity Snapshot

• Price: $ 55.83• Beta: 2.13• Trailing P/E: 7.13• Forward P/E: 8.53• PEG Ratio (5 yr. expected):

0.78 • P/B Ratio: 1.82

Share Repurchase• Nov 3 – Nov 30: $ 48.37 * 1,707,958 shares• Dec 1 – Dec 31: $ 51.60 * 1,604,533 shares

Source: Finance.yahoo.com


Stock Performance – cont’d

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Source: Capital IQ


Stock Performance – cont’d

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Key Financial Ratios

16Source: Company Report

Valuation Ratios 2010A 2011A 2012AEarnings per Share (EPS) $6.35 $8.70 $7.79Price Earnings Ratio (P/E) 4.94 5.92 7.17

Profitability RatiosROA 9.0% 11.3% 9.3%ROE 37.3% 36.9% 26.7%Gross Margin 12.0% 11.5% 10.9%Operating Margin 8.2% 7.8% 6.6%Net Income Margin 6.1% 7.4% 6.3%

Efficiency RatiosInventory Turnover 16.66 17.02 15.03Fixed Asset Turnover 6.85 7.60 6.89

Liquidity RatiosCurrent Ratio 1.18 1.20 1.22Acid Test 0.37 0.41 0.40Operating Cash Flow Ratio 0.34 0.33 0.28

IntroductionIntroductionIntroductionIntroduction CompanyCompany IndustryIndustry ValuationValuation

Valuation — WACC Analysis

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Capital StructureTotal Debt 1,462Market Value of Equity $7,206.47Debt-to-Total Capitalization 16.9%Equity-to-Total Capitalization 83.1%

Cost of DebtCost of Debt 7.3%Tax Rate 28.0% After-tax Cost of Debt 5.3%

Cost of EquityRisk-free Rate(1) 1.8%

Market Risk Premium(2) 7.0%

Beta(3) 2.13 Cost of Equity 16.7%

WACC 14.8%

WACC Calculation

(1) Risk-free Rate - 10-year treasury yield as of April 10, 2013

(2) Market Risk Premium - Determined based on auto analyst average

(3) Beta taken from 5-year historical Bloomberg data


Valuation

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Enterprise Value 8,936Less: Debt (1,462)Add: Cash 1,223Implied Equity value 8,697

Shares Outstanding 130.694Implied Fair Value Per Share $66.54

Current Share Price $55.14

(in $ millions) 2013E 2014E 2015E 2016E 2017ERevenues 17,924 19,179 20,329 21,346 22,200COGS 15,937 17,033 18,012 18,913 19,670Gross Profit 1,987 2,146 2,317 2,433 2,530

% of Sales 11.1% 11.2% 11.4% 11.4% 11.4%

Operating Income 1,184 1,260 1,085 1,213 1,318% of Sales 6.6% 6.6% 5.3% 5.7% 5.9%

Net Earnings (attrib. TRW) 985 1,078 1,175 1,225 1,2415.5% 5.6% 5.8% 5.7% 5.6%

Add: Depreciation and Amortization 450 484 508 521 521Less: Change in Net Working Capital (101) 90 130 372 445Less: Capital Expenditures (654) (687) (721) (757) (795)

Free Cash Flows 679 965 1,091 1,361 1,411Terminal Growth Rate 3.0%Terminal Value 12,342

Discount Rate 14.8%Enterprise Value $8,935.71

Terminal Growth Rate

$66.54 2.0% 2.5% 3.0% 3.5% 4.0%

13% $76.42 $79.09 $82.04 $85.30 $88.93

14% $69.09 $71.22 $73.55 $76.11 $78.92

15% $62.94 $64.67 $66.54 $68.58 $70.81

16% $57.72 $59.14 $60.67 $62.32 $64.12

17% $53.23 $54.41 $55.68 $57.03 $58.50

WA

CC

Valuation — Trading Comparables

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Enterprise Value / Price NTM Enterprise Value NTM Forward

Company Name EBITDA EBIT Diluted EPS Tangible BVForward Total

Revenue Forward EBITDA P/E

TRW Automotive Holdings Corp. (NYSE:TRW) 4.3x 5.7x 6.9x 4.2x 0.41x 4.2x 8.53x

Autoliv, Inc. (NYSE:ALV) 5.8x 7.8x 13.3x 3.1x 0.72x 5.8x 11.98x

AutoNation Inc. (NYSE:AN) 13.1x 14.9x 16.8x 32.0x 0.57x 12.4x 14.68x

BorgWarner Inc. (NYSE:BWA) 7.6x 10.0x 17.4x 4.9x 1.18x 7.4x 13.66x

Dana Holding Corporation (NYSE:DAN) 4.1x 6.4x 11.8x 3.6x 0.43x 3.8x 8.66x

Delphi Automotive PLC (NYSE:DLPH) 7.0x 9.0x 12.8x 12.5x 0.93x 6.5x 10.09x

Icahn Enterprises, L.P. (NasdaqGS:IEP) 9.0x 12.6x 16.3x 4.0x - - -

Johnson Controls Inc. (NYSE:JCI) 10.1x 14.4x 19.8x 6.0x 0.67x 8.4x 11.99x

Lear Corp. (NYSE:LEA) 4.3x 5.6x 4.1x 1.8x 0.27x 4.0x 10.79x

Magna International Inc. (TSX:MG) 4.9x 7.6x 9.6x 1.7x 0.38x 4.8x 10.27x

Tenneco Inc. (NYSE:TEN) 5.1x 7.1x 8.1x 27.4x 0.42x 4.7x 10.23x

High 13.1x 14.9x 19.8x 32.0x 1.2x 12.4x 14.7xLow 4.1x 5.6x 4.1x 1.7x 0.3x 3.8x 8.7xMean 7.1x 9.5x 13.0x 9.7x 0.6x 6.4x 11.4xMedian 6.4x 8.4x 13.1x 4.5x 0.6x 5.8x 10.8x

LTM EBITDA LTM EBIT LTM Diluted

EPS LTM Tangible

BV/Share NTM Revenue /

Share NTM EBITDA NTM EPS TRW Automotive Holdings Corp. (NYSE:TRW) 1,585.0 1,176.0 7.83 12.81 16,720.26 1,648.48 6.32Implied Price_Mean $93.70 $93.41 $101.79 $124.26 $86.16 $88.15 $71.87Implied Price_Median $84.46 $82.25 $102.18 $57.00 $79.36 $79.61 $68.19


Risks & Decision Drivers

(1) GICS Diversification

(2) Discount to Peers

(3) DCF Valuation

(1) Consistently Low P/E Ratio (8.5x Forward)

(2) Competitive Market Segment

(3) Cyclicality

(4) Macroeconomic Landscape

Risks


Decision Drivers

Recommendation

Watch List


Questions?

TRW Automotive

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trw a utomotive h oldings equity investment presentation 1 richie hartz ha da jang diana yang april...

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